GE and Wal-Mart Aren’t Game Changers

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Hello and welcome to the HBR IdeaCast. I'm Paul Michelman, Director of Content for HarvardBusiness.org and I'm joined today by Bill Taylor, author of Mavericks at Work. Bill also writes the Game changer blog for harvardbusiness.org Bill, thanks for joining us today.

My pleasure. Great to be here, Bill.

The subject of our discussion today is the subject of your latest post for HarvardBusiness.org, entitled Memo to Andy Grove. General Electric and Walmart aren't Game changers. Grove wrote in a recent issue of Portfolio magazine that GE and Walmart needed to get more fully into the disruptive innovation game. And your response to that is, Phooey, Bill, what's wrong with Grove? Wanting these big companies to get more involved in innovation seems like a good thing to me.

Well, I certainly appreciate the sentiment from Andy and I certainly don't take lightly the idea that I'm disagreeing with one of the both most visionary and toughest minded CEOs of the last 25 years. But I just think he's looking in the wrong place for answers to these two pressing challenges. I think Andy is both hopeful and frustrated. Hopeful because he sees two huge issues facing America and the world, one obviously being global warming and the need for dramatic technology innovation when it comes to cleaner technology, the other being the ongoing crisis in the US healthcare system. But this notion that through some combination of technological innovation and business model innovation, there are ways to overcome it. And so that's the hopeful part of it. The frustrating part of it is I think he's a little tired of it's always the world of venture capital and startups and Silicon Valley, which of course he's a creature, but he's a creature of the giant company part of Silicon Valley. And he's basically saying, why can't big, powerful, muscular, established corporate companies getting this game as well? Here we've got GE and Walmart, two of the great companies in the world in many respects. He literally wrote letters to Jeff Immelt of GE and the CEO of Walmart, saying to Jeff Immelt, why on earth aren't you doing a moonshot type innovation to build an electric car? And to the CEO of Walmart, you're great at squeezing out cost supply chain management. You've got these, you know, experimental health clinics in a number of your stores. Take on the health Care system and you guys can change the game. And I've got a thousand different objections to that. We could go through them, you know, one at a time if you'd like. But I just think he's. He's looking for innovation in all the wrong places when it comes to these two particular action items for the country.

Is this. Is your objection specific to these two companies or to large companies in general, and the appropriateness of us looking to them for the big innovations?

Well, I think. I guess it's a both and answer to that question. That is to say, Andy's argument starts with the premise that for both GE and Walmart, they're running out of growth opportunities in their core businesses. So he's appealing to them first of all, just as business strategists, saying, hey, our job is to grow these giant companies much faster than the GNP of the United States, and the only way to really do that is to get into completely new businesses. To which I say, okay, if I'm the CEO of ge, would I rather think about getting into something altogether off the beaten path, like an electric car? Or would I rather say, we've got tremendous opportunities in infrastructure, traditional energy generation, we're kind of global. Let's go even more. China, India, Russia, Brazil. Why don't we take our current lines of business and put the pedal to the metal globally, do what we know, just do it in other parts of the globe even more aggressively, as opposed to, let's go into something exotic like an electric car from the point of view of Walmart, my goodness. I mean, if I'm the CEO of Walmart, I've spent the last three or four years getting knocked around by politicians, by the press, by my own customers, saying, the original Walmart model of squeeze every nickel out of the process, supply chain management, that whole model has sort of run out of gas. When you're selling things as mundane as laundry detergent or computers. The notion that, okay, the way to respond to that is now to essentially take that model and apply it to something as complicated as hot button, an issue as psychologically and emotionally resonant as healthcare sees, my goodness, that's the last place I'd ever want to go. So part of it is just writing these Letters to these CEOs, is it really realistic that this would ever be on the top of their agenda? So that's these companies in particular. But there is also, I think, the bigger issue, and it's just a place when it comes to innovation that Andy and I part company, which is, do we really look to big, giant, successful organizations for radical breakthrough, disruptive. And really his essay, the title of it is Think Disruptive. But it's all about we all love disruptive innovation. And I read this essay a few weeks after seeing, and I blogged about this as well. Irving Vladowski Berger, the legendary technologist at IBM, give a really remarkable and candid talk where he said IBM has done incredible transformation in the last decade. But. But to do it it required what he called a quote unquote near death experience. And his argument was basically just the realities of life inside huge organizations like ge, like Walmart, like RBM is. Nobody really does anything truly disruptive until about 1 second before midnight and you really have to do it or you go out of business. The near death experience is fundamentally required to do a kind of leap of faith innovation. And GE and Walmart and many big companies have their problems. They're not looking at near death experiences at that sense. I just think it's. Again, I appreciate the sentiment. I was just surprised. It feels a lot more like wishful thinking to me than it does a really sober minded assessment. I think in part it's about the companies, but in part it's about what is our mindset when it comes to big companies and breakthrough innovation.

I guess one of the questions that occurs to me is why can't the ges and the Walmarts of the world do both? Why can't they concentrate on extending their core business in the case of GE going to China, really taking advantage of the markets that they haven't yet penetrated, at the same time trying to be truly innovative? Why can't GE have a skunk works? They certainly have the money to fund it. Is there a fundamental issue you think standing in the way there?

I think it's fundamentally a question of a sense of urgency. And I think you can within a big company conjure up a sense of urgency. But I'm not sure you can conjure up too many senses of urgency at the same time. And it's funny, as I was thinking about Irving from IBM Irving's presentation, you know, I started asking myself how many big companies without a near death experience have conjured up the technological sense of urgency to do something really dramatic. And I came up with Procter and Gamble, which I think is experience. One of the great corporate turnarounds under AG Lafley I've ever seen in my life and they certainly weren't on the verge of going out of business. And the only one I could think of was actually GE under Jack Welch. But that was a sense of urgency much more around portfolio reallocation, cost cutting, accountability, all the stuff that I think big companies know how to do. If you can come up with a hard driving change agent CEO to get people to do that, to be able to do that, and oh, by the way, do something as dramatic as, you know, finally an electric car that gets the job done, or in Walmart's case, you know, a real rethink of the healthcare system. I just think that's asking large organizations to do more than is. I mean, I'm not sure big companies can in fact chew gum and walk at the same time. And so if you look at GE in particular, the stock price today is a little bit above or a little bit below where it was when Jeff Immelt took over at the end of 2001. Obviously, and I don't begrudge him this, the huge thing that has to be on his mind is it's been six years now, I've got to get the stock price moving. He's going to get the stock price moving by making dramatic improvements in the existing businesses as opposed to doing some sort of moonshot innovation. Lee Scott from Walmart is saying Walmart has gone in the course of a decade from being, you know, in every issue of the Harvard Business Review as one of the great model companies of all time to being a company that is as much loathed and feared as it is respected. And I think if he's looking at him saying, okay, for the next five years, do I not want to bite into the health care apple? It's kind of the third rail of American business, if you will. So again, I think it's hard enough for big companies to create a genuine sense of urgency around simply doing the core business. Better to do that and say, and now for something completely different. I think it's asking an awful lot.

Okay, so let's talk now to the individual managers listening from ge, from Walmart, from other large multinational companies who are feeling a little bit defeated now. These are people who want to be innovative, who want to be a part of the future. Is your suggestion to them look elsewhere, get out, go find a smaller company? What should they be doing?

No, well, first of all, just to get back to Andy's essay and then I'll answer the question more. His argument was he has coined this term cross boundary disruption. And his argument is big companies and the people in them are actually quite capable of taking their skills and talents and financial resources and R and D resources as they exist in one industry and turning the telescope and boom, going after. And to me, I just don't think that's realistic. And the one and only example of this that he cites is Apple. And it's now dominance of the music business, which of course wasn't a business Apple was in 10 years ago. But to me, that's the exception that proves the rule. Apple got into the ipod and itunes business in part because it was a positive opportunity, but they really got into it in part because they were running out of opportunities in the traditional personal computer business. They did in fact face a near death situation. They were on the verge of being a complete afterthought in personal computing unless they rethought fundamentally the business they were in. So they did it out of as much out of desperation as they did out of inspiration. As far as individual executives, managers who want to be innovative and creative and have an impact, I think there's no shortage of opportunities within companies like GE and Walmart and so many others to do all kinds of innovative and creative things. I do think, however, it will fundamentally be incremental sorts of innovation as opposed to the breakthrough disruptive sorts of innovation that Andy is looking for in this essay. And you know, if you want to play the disruption game, if you want to play the game of I'm going to be part of a team that develops a product that fundamentally revolutionizes the industry I'm in, I'm not sure you do that within the confines of a. And it's no disrespect to these big companies. It's just not the game they're. And if you look around at all of the breakthrough innovations in the last 20 years, they tend to be funded by venture capital, perfected and launched by startups. And eventually big companies may buy them. But in terms of being present at the creation, it's probably not going to come out of a giant organization.

Okay. Bill Taylor, thank you very much for joining us today.

It was fun. My pleasure.

Do you agree with Bill Taylor's take on the role that large organizations can play in disruptive innovation? Come get involved in the conversation, but by visiting Bill Taylor's Game changer blog on harvardbusiness.org we hope you've enjoyed this week's program. For more great ideas from Harvard Business, please visit our website at www.harvardbusiness.org. thanks for listening.